SOFTWARE LICENSING

Software Providers Move Toward Pricing Models that Better Serve Both Customers and the Bottom Line

By Mae Kowalke, TMCnet Contributor

Neither side is happy.

That’s the largest takeaway from Flexera Software’s annual Software Pricing and Licensing Survey, prepared in conjunction with IDC (News - Alert).

Many software producers indicate that they feel they are not getting the full value of the software they're delivering to customers, and many customers report that they feel they are not getting enough value for money, according to a news release about the survey.

Nearly a quarter of application producers believe their licensing and pricing strategies are either ineffective or very ineffective in capturing the true value they deliver in their products, the survey found. Enterprises indicated by an almost equal percent that most frequently they are either unsatisfied or very unsatisfied with the price-to-value of their ERP software. They also are unsatisfied with the value of database software (22 percent), and CRM software (20 percent).

“The survey confirms a perception gap in the value of software that could explain some of the contentiousness between producers and their enterprise customers,” said Steve Schmidt in the news release, vice president of corporate development at Flexera Software. “We've seen first-hand that the manner in which some software companies package, price and license their software products does not necessarily correspond with how organizations use or value them.”

The survey suggests that software producers are moving toward pay-as-you-go and subscription offerings, however, which could lessen dissatisfaction on both sides.

In the next 18-24 months, the utility model or pricing by usage, time and number of transactions is expected to increase from 9 percent of software producers to roughly 23 percent. Such pricing models potentially can close the perception gap on both sides in terms of fair pricing.

“As the industry matures, there are no longer based-on-technology advances on the software side,” noted Susan Campbell in a TMCNet post last year. “Software meets a need based on what people need, and people can only absorb so much technology. As a result, providers will have to find a different basis for competition and price levels.”

And software producers are working on different pricing models. Roughly 42 percent of software developers reported that their software pricing and licensing strategies have changed in the past 18 to 24 months, according to the Flexera statement. Organizations polled cited added revenue generation as the main reason, at 69 percent. Other reasons for licensing changes included improved customer relations (44 percent), a push to accelerate the sales cycle (35 percent), and to enter a new market (28 percent).

Flexera, which spends a lot of time educating software producers on the various licensing options, noted that offering a variety of pricing models is the best way to keep the customer happy.

"By building pricing and licensing flexibility into their products, they can very easily package and price their software tailored to the changing needs of their customers,” Schmidt said. “The survey shows that we are seeing this begin to happen--the result of which will ultimately narrow the software value perception gap that exists today.”